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Morning View

Gold US$1,642/oz - Copper US$ 8,031/t

· Metals prices hold steady despite S&P downgrade and potential European market turmoil

· Bid activity in the resources sector should drive smaller companies better

· Chinese GDP and IP figures today – traders are holding gold and oil pending tomorrow’s news

· China is looking to hold back expansion in the Copper and aluminium space to conserve energy for other, value added industries.

Economic News:

Europe – S&P has cut the top credit rating of France along with 8 other euro zone nations. 

· France will auction as much as €8,7bn euros today. 

· Stocks are off this morning as concern over the auction mount. 

· Greece will go to the markets tomorrow. 

· Last week creditor banks cut off talks with the Greeks after failing to agree with the government about how much money investors will lose by swapping their bonds. 

· Speculation continues to increase that Greece will now default on its obligations by March – potentially prompting the move to exit the single currency. 

· Leaders are expected to scramble this week in an effort to deliver new fiscal rules for Greece. 

· Angela Merkel played down the risk that weaker French creditworthiness saps strength from the region’s bailout fund over the weekend. 

· Wholesale prices in Germany appear to have eased. 

· Yoy figures released at 07.00 show that prices for December say at 3% compared to 4.9% last year. 

US – New forecasts suggest US retail industry sales growth will shrink to 3.4% this year on the back of the continued slump in the housing market. 

· Home prices in the US are forecast to decline by 1% this year. 

China – Figures due for release tomorrow are expected to show that China’s economy probably grew the least in ten quarters in Q4 2011. 

· New estimates suggest the economy grew rose 8.7% from a year earlier – the slowest pace since Q2 2009. 

· Forecasts for 2012 now suggest growth of 7.5%. in Q1 2012. 

· Stocks were off today on the back of the Euro downgrade. 

· Reports indicate that the PBOC will inject funds into the financial market this week to ease a cash crunch ahead of next week’s annual holiday. 

· China has today launched its first physical iron ore trading platform today. 

· PWC has estimated that China overseas acquisitions which reached a record in 2011 will continue double digit growth this year as the benefits of international investing continue to grow in appeal for more and more Chinese investors. 

· Industrial production figures will be released tomorrow. 

Japan – Machinery orders rebounded in November, signalling that companies are willing to increase capital spending despite the yen’s strength and the global economic slowdown. 

· Bookings rose 15% in November from a month earlier. 

· Weak overseas demand and a rising currency have impacted spending over the last 8 months. 

· Despite the good orders figures stocks declined today as the Eurozone crisis now looks like taking another turn for the worse. 

· Consumer confidence figures released today show that confidence in December rose – beating estimates – rather surprisingly. 

India – Figures released today show that inflation in the country slowed to the lowest level in two years, giving the central bank scope to keep interest rates on hold. 

· Figures released today show that imports rose 19.8% in December. 

UK – Home sellers have reportedly cut the asking prices for a third month in January according to right move. 

· Yesterday the Chancellor said he sees some reason for optimism in Europe. 

· A Think tank – called the Item club has reportedly stated that the UK is back in recession. 

· The Treasury has announced plans to make London the leading international centre for trading the yuan. 

Scottish devolution – English show stronger support than Scots for Scottish independence (Scotland on Sunday)

· “Only 26% of voters in Scotland want to break up the Union, compared with 46% who do not, a Survation poll in the Mail on Sunday revealed.

· In England and Wales, 29% felt Scotland should quit the UK, with only 40% feeling that it should not. Meanwhile, an ICM survey for the Sunday Telegraph found 40% of Scots supported independence, while 43% of Scots wanted to retain the Union.”

· But among the English, 43% supported independence while only 32% wanted Scotland to remain in the UK.

All we can say is ‘Be careful what you wish for!’

Iran – As the war of words continues Iran has warned Saudi Arabia and other Opec members not to boost their oil production to make up for any shortfall created by the new western sanctions – according to the FT. 

· The threats are the latest round of sabre rattling emerging from the Iran over the last 4 weeks. 

Australia – Home loan approvals rose in November for an 8th straight month as the central bank’s first interest rate reduction in close to 2 year prompted new buyers into the market. 

· The number of loans granted to build or buy new homes and apartments gained 1.4% - the most since May. 

Columbia – The country’s central bank has stated that the economy grew between 5.5 and 5.6% in 2011. 

Chile – Officials in the country have imposed a fresh freeze on sale of part of Anglo American’s assets in Southern Chile on the back of an ongoing legal dispute with Codelco – The state owned miner. 

South Africa – The National union of mine workers has suspended its intended strike at Exxaro’s Arnot coal mine, originally scheduled to start on Friday. 

Tanzania – The state run electricity supplier, Tanzania Electricity Supply Co, has been cleared to increase tariffs by at least 40% from the 15th of January. 

· The country currently faces a power deficit of around 250megawatts. 

Nigeria – The country’s main labour unions have suspended protests over the removal of fuel imports subsidies after the President lowered prices. 

· The country’s oil Minister has announced new plans to tackle corruption and speed reform within the country’s oil industry. 

· Under the plans all subsidy payments made by the Government on gasoline and kerosene to be reviewed to ensure no corruption has taken place. 

Kenya – The military are claiming that they have killed 700 al-Shabaab fighters in southern Somalia since entering the neighbouring country 3 months ago. 

Currency – The euro weakened further today against the so called safe haven currencies. 

Commodity News:

Precious:

Gold US$1,642/oz vs US$1,647/oz on Friday  – Gold prices are marginally higher this morning following a knee-jerk fall on Friday when S&P downgraded credit rating of 9 Euro zone nations and dollar index against major currencies gained 0.8%.  Generally gold prices have held steady despite through the past few weeks highlighting its relative stability.

· China is likely to see some selling as investors will be closing their positions in gold and lock in profits this week ahead of a week-long Lunar New Year.

· Gold jewellery demand in India advanced by 5-7% in 2011 and is forecast to grow 10-15% in 2012, the head of India’s largest jewellery retailer said.

· 80% of surveyed gold miners expect the price of the commodity to reach US$2,000/oz over the next 12 months, PwC said in its Gold Price Report. Miners underestimated the move in gold price in 2011 forecasting it to peak at US$1,500/oz.

· Severstal will spin off its gold unit Nordgold this week. Nordgold GDRs will be listed on the LSE on Jan 19 accordinig to the company’s statement.

· Chalice Gold Mines has been awarded 2 mining licenses at its Koka gold mine, Zara project in Eritrea. The deposit includes a JORC resource of around 5mt, with a grade of 5.3g/t and 840koz of contained gold.

· Chalice plans to produce around 104koz per annum over a 7 year life of mine at its Koka gold deposit.

· SPDR gold trust holdings remained at 1,254t (40.322moz) value US$65.935bn.

Platinum US$1,491/oz vs US$1,492/oz on Friday 

· South African Platinum miners said no power shortages is expected this month and they plan to meet production targets despite utility Eskom warning of an increased risk of blackouts.

Palladium US$640/oz vs US$632/oz on Friday 

Silver US$29.81/oz vs US$30.12/oz on Friday 

Rhodium US$1,355/oz vs US$1,350/oz on Friday 

Base metals:

Copper US$ 8,031/t vs US$8,032/t on Friday  – Copper advanced on falling LME inventories signalling a pick up in global demand.

· Orders to remove Copper from LME warehouses increased by 34% to 66,025t on Jan 13, the highest reading since May 14 2009.

· Pan Pacific Copper, the largest Copper producer in Japan, will restart its Saganoseki smelter in Feb, a month after a fire accident.

Aluminium US$ 2,147/t vs US$2,164/t on Friday 

Nickel US$ 19,550/t vs US$19,750/t on Friday 

Zinc US$ 1,953/t vs US$1,961/t on Friday 

Lead US$ 2,030/t vs US$2,038/t on Friday 

Tin US$ 21,000/t vs US$21,100/t on Friday 

Energy:

Oil US$111.38/bbl vs US$111.98/bbl last week – Oil falls this morning- US crude is at US$99.11/bbl on the New York Mercantile exchange with WTI at US$99.28/bbl on London-based ICE futures exchange.

· Euro debt crisis counters Iran calls for support over sanctions limiting its crude exports. 

· Greek officials meet with creditors on Wednesday as European leaders try to deliver new fiscal rules in a bid to cut Greece’s debts. 

· Nigerian labour unions said they will extend a national strike into a second week over the abolition of fuel subsidies. 

· Oil output and exports are still unaffected by the strike action. However oil union Pengassan has stated it will move to a systematic shutdown of oil production if the negotiation with the government breaks down. 

· Nigeria’s crude is largely produced by the following: Royal Dutch Shell, Exxon Mobile Corp., San Ramon, Chevron Corp., Total SA, and Eni SpA in JV’s with state owned Nigerian National Petroleum Company (NNPC). 

Natural Gas US$2.605/mmbtu vs US$2.728/mmbtu last week – Natural gas prices fell 13% last week, the lowest in a decade for winter time.

· The U.S. has ample natural gas resources due to the new drilling techniques that have enabled energy companies to access supplies that were previously unreachable. 

· On the downside for electric power producers, profits are down and some companies drilling for natural gas are turning on a hunt for oil as the price still tilts over the US$100/bbl mark. 

Uranium US$53.70/lbs vs US$53.70/lbs last week – prices may rebound after worst year since 2008 amid India and China’s growing demand coinciding with concerns over a supply deficit.

Coal - Colombia reports that its output for fuel will climb 14% in 2012 citing mine expansions as the driving force. Exports climbed to 6.1 million tons in November.

Other

Iron Ore – Fortescue Metals, the third-largest iron ore producer in Australia, resumed operations at Cloudbreak and Christmas Creek sites, 2 of its Pilbara mines with total output of 55mtpa, after risks of potential production damage by Tropical Cyclone Heidi receded.

· Fortescue Metlas may be looking for a partner to develop its 2.1bn tons deposit, on of the largest magnetite iron project in Australia.

· The project North Star is close to Fortescue’s existing Glacier Valley majnetite JV with Baosteel Group.

· North Star is 25km away from an existing rail line to Port Hedland. It is forecast to produce 20-30mt of iron ore pellets per year.

· China launched its first physical iron ore trading platform in Beijing today.

· Local steelmakers such as Baosteel Group, Hebei Iron & Steel, Wuhan Iron & Steel, Beijing Shougang and Angang Steel, along with such traders as China Minmetals and Sinosteel agreed to become established platform members.

Company news:

Anglo Asian Mining* (LON:AAZ) – Mined gold grades rise at Gedabek gold / Copper mine

http://www.angloasianmining.com/home/

· Azerbaijan produced some 1,637 kg of gold and 1,122 kg of silver (52,550 oz gold, 36,018 oz) from January to November 2011 according to an internet press report on Friday carried by Today.AZ an Azerbaijan focused website.  The figures are reported to be from the Azerbaijani State Statistics Committee

· Anglo Asian’s Gedabek gold mine is the only gold producer in Azerbaijan that we know of and is going from strength to strength as the gold grades exceed expectations.

· The key figures in the report relate to the grade mined at Gedabek with over 2 g/t mined versus the mine plan of 1.8 g/t.   The report goes on to state that “during the drilling operations that the gold-bearing resources in the field and the saturation of ore exceed the forecasts.”  “sometimes the ore saturation exceeds 3 grams.” “one can get about 16 grams of silver and 0.29 percent Copper from each ton.”

· Fairfax mining analysts visited the Gedabek gold mine last week to determine the future potential of mine and agree that the mine appears to be producing better than expected grades and that upgrading the process plant to process higher grade ores looks to be a highly profitable option for management.  

· While the mine has done well with its heap leach operation, there appears to be significant value in investing to upgrade the plant for the extraction of higher gold and sliver grades along with the ongoing recovery of Copper

· Gosha:  the press report estimates a potential resource at Gosha at 300,000oz which is somewhat higher than our own, possibly more realistic, projection.  The report goes on to forecast potential for 20,000oz pa gold production from the Gosha mine versus our more conservative expectation for 10,000 to 15,000 oz from 2013. 

Conclusion:  Anglo Asian continues to show increasing value and potential to exceed production targets.  If the state figures are correct for the year to November and if gold production continued as normal through December then the company may exceed its target of 58,000-60,000oz for the year from the heap leach.  Cold weather towards the end of the year will have slowed gold and silver production and introduction of a new agitation tank process could eliminate this issue.

*Fairfax acts as Nomad and broker to Anglo Asian Mining

**Fairfax analysts visited the Gedabek mine in Azerbaijan late last year  

Alecto Minerals (LON:ALO) – Drill Programme Finalised for Wad Amour Copper/gold Project

· The company has announced that it has finalised its 1500 m scout drilling programme at its Wad Amour project in Mauritania. 

· The programme will comprise 12 holes focussed pm on its 615 sq km Wad Amour licence. 

· Previous field work consisting of soil geochemistry, rock chip sampling, trenching, geophysics and mapping by SRK had identified three prospects. 

· The most promising of these targets is the Chiron target in the central region of the Wad Amour licence where mineralised haematite breccia ridges with Copper oxides were encountered during previous exploration. 

· Rock chip sampling of these ridges returned grades up to 5.8% Copper, 0.66 g/t gold and 13.6/t silver with anomalous results occurring over a straight line distance of 630m. 

· The mineralisation at the licence is an Iron Oxide Copper Gold (IOGC) style mineralisation and is an example of the style of deposit at the Guelb Moghrein deposit owned by First Quantum. 

· The Company’s technical assistant Michael Smith will be overseeing Phase 3 of this exploration work which will commence in Q3 2012. 

Conclusion:  The commencement of the exploration work at Wad Amour will be a positive step forward for Alecto. Early work by SRK on the Chiron prospect is promising and should generate positive news flow for the company as the exploration work progresses.  We believe this project has good potential for Copper discovery with good Copper grades shown at surface over a meaningful at-surface strike length.

EMED Mining (LON:EMED) – Quarterly highlights timetable to re-start Rio Tinto in Q3

Buy – Target price 32 pence

· Following the previous updates provided by the company on the status of permitting at the Rio Tinto mine, the company confirmed that they are committed to a timetable that triggers a re-start of the mine during Q3 2012. 

· The company’s teams are making steady progress on all aspects of the permitting, legal, finance and project planning of start-up and expansion. 

· The substantive aspects of restarting relate to the waste and tailings management and the government has taken initial steps to enable access to third party lands to progress plans for the project to comply. 

· The company has also undertaken to provide independent expert reports on these sensitive areas. 

· EMED is engaging with a range of banks and potential product customers, royalty funds and equity investors to optimise financing of the Rio Tinto mine. 

· The company is also executing concessions with MRI Holdings giving rights to mineral concessions adjacent to the Rio Tinto mine to extend project life. 

Conclusion: The company is progressing the permitting and financing of the mine as set out at the end of the last year. We continue to believe that there is now sufficient support and momentum to get this valuable project restarted and continue to recommend the shares with a target price of 32 pence.

North River Resources (LON:NRRP) - Drill Results from Tsawichas Prospect at Ubib Copper-Gold Project

· The company has announced results from a 1,772 m drilling programme completed at the Tsawichas Prospect. 

· The programme was to test the gold soil geochemistry at previously identified gold anomalies. 

· The drilling generally demonstrated low grades over narrow widths. 

· The company believe that no further work is necessary at the Tsawichas Prospect based on these results although there is evidence of gold mineralisation over the strike. 

· Soil geochemistry results were also returned from Bergrus and Tsawisis. 

· These results did not show any prospects at Tsawisis. 

· At Bergurus – two types of sampling conventional and TerraLeach TM were carried over two areas of interest. 

· The conventional sampling did not produce sufficient anomalies and the TerraLeach TM  has defined a possible fault or lithological contact zone with slightly anomalous gold values. 

· These results are not sufficient for follow up and further work on the Bergrus South Target will depend on future results along strike to the southwest. 

· Ongoing work at the Ubib Project will focus on the area southwest of the Bergrus Target where new regional targets have been identified as a result of re-interpretation of regional magnetics and reconnaissance visits. 

· No major ground programmes are planned during the first two quarters of 2012. 

Conclusion: Disappointing results from Tsawichas Prospect at Ubib. However, the company have carried out exploration work across a number of other projects in their portfolio in Namibia during 2011 and we look forward to getting these results during Q1 2012. The company have the funds to progress their ongoing exploration work.

Paragon Diamonds (LON:PRG) – Initial diamond grade and volume estimate for Motete Dyke 

· Provisional results from grade modelling from the first 200 kg sample show that the dyke is diamondferous with a grade of between 1.27 cts/tonne at 1-DTC and ) 0.64 cts/tonne at 5-DTC. 

· The average stone size is predicted at 0.1 cts/stone with the statistical probability of larger stones – including #3 in the +60-100 ct/stone, #20 in the +30-60 ct/stone and #300 in the +10-30 ct/stone per million tonnes. 

· The company has undertaken detailed mapping and measurement of the surface expression of the dyke confirming the exposed strike as exceeding 1.400 m and the av width of 140m. 

· A provisional volume estimate done internally by the company using volume and density data shows potential for the diamond bearing material to host in excess of 1 m tonnes. 

· Further comprehensive grade modelling will be undertaken once all micro-diamond analysis is available for study. 

· The company intends to advance to a scoping study based on low cost mining model for the dyke with the topography enabling a typical overhead fissure mining operation. 

Mining last week: 

Lonmin (LON:LMI) – Rejection on Appeal on Granting of Keysha Investments prospecting rights

Wolf Minerals (LON:WLFE) – UK Government supports Hemerdon Tungsten Project

Discovery Metals* (LON:DME) – Selene resource 16mt grade 1% Copper

Cluff Gold (LON:CLF) – Production Update at Kalsaka gold mine in Burkina Faso

IRC (HKG:1029) – Fourth Quarter Trading Update exceeds targets

Angel Mining (LON:ANGM) – gold production rises with 518kg gold pour this week

African Iron (LON:AKI) – Recommended cash over by Exxaro but still room for more

Equatorial Resources (ASX:EQX) 

West African Minerals (LON:WAFM) – Early stage iron ore (DSO, haematite) potential 

Kasbah Resources (ASX:KAS) – Ongoing drilling shows good results from Achmmach tin project in Morocco 

Alcoa (NYSE:AA) – 4Q 2011 in line with previously downgraded expectations

African Iron (ASX:AKI) – Trading Halted Based on Pending Major Transaction

Equatorial Resources (ASX:EQX) 

Horizonte Minerals (LON:HZM) - Araguaia Nickel project resources rises to >100mt 

Vane Minerals (LON:VML) – Withdrawal of Federal Uranium Lands in Northern Arizona

Copper Development Corporation (LON:CDC) – Basay Drilling Update

CDC hold 70% of the Basay project

Paragon Diamonds (LON:PRG) – Further Results from micro-diamond sample at Motete-Dyke Licence (Lesotho, Southern Africa)

Rambler Metals and Mining (LON:RMM) – Signs Off-Take Agreement with Transamine for Copper in Concentrate from Ming Mine

Rio Tinto (LON:RIO) – Offer for Hathor Exploration Has 93.76% take up